Unexpected High-Intensity Social Distancing... Tax Revenue May Decrease More Than Expected

[Asia Economy Reporter Joo Sang-don] There is an analysis that tax revenue might decrease due to the high-intensity social distancing measures implemented during the 4th wave of COVID-19. Although the economic recovery was expected to be faster than anticipated, leading to a forecast that this year's excess tax revenue would exceed 31.5 trillion won, there is now an analysis suggesting that the unexpected impact of the stringent social distancing could cause the actual figures to fall short of expectations.

According to the Ministry of Economy and Finance on the 18th, when preparing the second supplementary budget, the government estimated the annual national tax revenue for this year at 314.3 trillion won. This is 31.5 trillion won more than the forecast of 282.7 trillion won reflected in this year's original budget.

The Ministry of Economy and Finance announces the national tax revenue budget every autumn by forecasting how much tax revenue will be collected the following year. This year, due to the rapid economic recovery, tax revenue came in higher than initially expected, leading to an unusual recent revision of the annual revenue forecast. By tax category, the ministry projected an excess tax revenue of 13.2 trillion won solely from asset markets such as capital gains tax and securities transaction tax. Reflecting the economic recovery, corporate tax and value-added tax are also expected to increase by 12.2 trillion won and 2.7 trillion won respectively compared to the original budget forecast.

The National Assembly Budget Office, considering favorable corporate earnings in the first half and an increase in comprehensive real estate tax due to rising publicly announced property prices, presented an excess tax revenue forecast of 35.4 trillion won, which is 3.9 trillion won higher than the government's estimate.

With the occurrence of the 4th wave of COVID-19, warning signs have been raised for tax revenue in the second half of the year. The government recently revised its tax revenue forecast again, assuming a growth rate in the 4% range and stable national tax revenue collection. However, COVID-19 has dampened the economic recovery. In its supplementary budget analysis report, the National Assembly Budget Office stated, "This tax revenue forecast is estimated on the premise that the recent recovery trend in macroeconomic indicators will continue in the second half of the year," adding, "If the resurgence of COVID-19 leads to a contraction in consumption and investment sentiment and a slowdown in foreign trade in the second half, there could be decreases in income tax, corporate tax, and consumption tax revenues."

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